Along with approving an ambitious 20,000 MW target for renewable power generation, the cabinet cleared amendments to the Electricity Act last week.
While the government has been trying to draw attention to the size of renewable energy projects that would make India become a global leader in solar generation, analysts are more upbeat over the amendments in the Electricity Act.
A JM Financial report on the amendments says that the proposals, if passed, are structurally positive for the sector with key beneficiaries being consumers, power traders and renewable energy players.
Following are five reasons why the amendments to the Electricity Act will be a positive for the sector.
1) Grid Security: Distribution companies have been known to cause grid collapses by overdrawing power.
A JM Financial report on the amendments says that the proposals, if passed, are structurally positive for the sector with key beneficiaries being consumers, power traders and renewable energy players.
Following are five reasons why the amendments to the Electricity Act will be a positive for the sector.
1) Grid Security: Distribution companies have been known to cause grid collapses by overdrawing power.
According to the amendments in the new electricity act, penalty for violating grid security measures have been proposed to be increased by hundred times.
This, JM Financial says, will act as a huge deterrent for over drawing power. The move will result in better planning by distribution companies which will increase volume of power trading companies.
2) Rationalisation of tariff: One of the main reasons that distribution companies are in losses is on account of irrational tariff structure, which is driven more by politics than economics. Presently, the central government’s tariff policy is seen as a benchmark but state regulators usually come up with their own tariffs. As per the new amendments, greater stress will be on regulators to follow tariff policy while fixing tariff and ensuring that distribution companies do not face revenue shortfall.
2) Rationalisation of tariff: One of the main reasons that distribution companies are in losses is on account of irrational tariff structure, which is driven more by politics than economics. Presently, the central government’s tariff policy is seen as a benchmark but state regulators usually come up with their own tariffs. As per the new amendments, greater stress will be on regulators to follow tariff policy while fixing tariff and ensuring that distribution companies do not face revenue shortfall.
As per the regulatory formula, fuel cost and purchase cost adjustments in tariff will be allowed more than once a year. Regulators now have the power to determine tariff even under back-to-back arrangements involving an electricity trader and a supplier.
3) Separation of supplier and distributor: Consumers will now be able to select the company from whom they would like to purchase power.
3) Separation of supplier and distributor: Consumers will now be able to select the company from whom they would like to purchase power.
A big relief for the distribution sector is the separation of the content and carriage businesses. Building infrastructure for power supply and the supply of power will be two different business entities. Besides, any power supplier can use the infrastructure. This step would make the sector more competitive and allow power generation companies to reduce their cost by not worrying about distribution.
4) Performance Evaluation: According to the amendment, regional commissions will be set up with a regional High Court or Appellate Tribunal for Electricity (APTEL) Judge as the Chairman. The Judge will have powers to review the regulatory commissions and remove members in case of non-performance.
5) Promotion of renewable energy: An enabling resolution has been introduced for National Renewable Energy Policy which is likely to introduce an obligation on New Thermal Power plants to produce renewable power. Such renewable power will be made cheaper by excluding them from cross subsidy and open access charges.
According to JM Financial, there is a visible push to strengthen and monitor regulators in order to ensure that distribution companies stay healthy. The amendments will be diluting the hold of state governments on tariff hikes and misuse of free movement of electricity across states.
4) Performance Evaluation: According to the amendment, regional commissions will be set up with a regional High Court or Appellate Tribunal for Electricity (APTEL) Judge as the Chairman. The Judge will have powers to review the regulatory commissions and remove members in case of non-performance.
5) Promotion of renewable energy: An enabling resolution has been introduced for National Renewable Energy Policy which is likely to introduce an obligation on New Thermal Power plants to produce renewable power. Such renewable power will be made cheaper by excluding them from cross subsidy and open access charges.
According to JM Financial, there is a visible push to strengthen and monitor regulators in order to ensure that distribution companies stay healthy. The amendments will be diluting the hold of state governments on tariff hikes and misuse of free movement of electricity across states.
Comment:
Its a good news for power sector.This amendments will increase the competition in power sector.For the next five years power sector will add huge investments from many new players.
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